Retail Banking for households in Italy

This chapter focuses on the role of the household sector and the retail banking services provided to this market. Italian banking for households can be defined as the cluster of investment, payment, and lending services offered to households as depositors or consumers, through direct distribution channels (branches), virtual channels (telephone, Internet, call centres, and ATMs), and indirect channels (agents, credit brokers, commercial dealers, etc.). The aim of the analysis is to identify the role and contribution of banking for households in improving stability and mitigating the effects of the financial crisis From the capitalisation point of view, it should be remembered that retail banking absorbs smaller than corporate lending amounts of regulatory capital. Together with a low funding gap (measured by the proportion of loans not financed by retail funding), in general this bank financial equilibrium and operating model mitigated the consequences of the 2007 financial crisis, leading to fewer liquidity and credit rationing problems, especially amongst the smallest banks. On the assets side, loans to households and companies account for the majority of the lending portfolio. This assets make-up helped to reduce the fall in the banks’ economic value arising from the slump in the market value of financial assets as a result of the crisis, although it left them exposed to the credit risk generated by the resulting recession. The contribution of savings by retail customers (households) to banks, and the high incidence of transactional and precautionary savings in Italian households’ current accounts, were vital in financing banks in the most critical periods of the financial crisis (2007–09), and they are also mitigating the economic and financial effects of the current fresh difficulties on the financial markets for Italian banks. From a corporate point of view, the large number of customers tends to stabilize the banking business’s volumes and margins by providing naturally diversified, granular loan and deposit portfolios. Within a bank’s operations, retail banking brings stability to profit margins, since it tends to compensate the trend in income from services (non-interest income and fees) against the trend in the net interest margin.